Transport and Communications Bulletin for Asia and the Pacific No.

73, 2003

LIBERALIZATION OF THE CONTAINER HAULAGE

INDUSTRY IN MALAYSIA
Tengku Jamaluddin Bin Tengku Mahmud Shah Al-haj*

ABSTRACT

The increase in volumes of international trade using

containerization led to the rapid growth of container traffic at
Malaysian ports throughout the 1980s and 1990s, which in turn
resulted in congestion at ports and delays in delivery of containers
to their destinations. Operasi Cekap, a concerted effort by the
Federation of Malaysian Manufacturer, Port Authorities and the
Ministry of Transport, was undertaken to find a solution to the
problems of delay in delivery and congestion at the ports. In line
with the recommendations made by various studies sponsored by
the industry and Government, measures have been taken to
liberalize the road haulage industry by allowing a greater number
of operators. Other steps have also been taken in order to ensure
that the manufacturing operations can be run smoothly and
Malaysian ports remain competitive. The liberalization of the
haulage industry was seen as a necessity as the dramatically
increasing number of containers arriving at national ports could
not be handled effectively by the few existing operators.

This paper discusses various measures that have been taken

by the Malaysian Government to liberalize the container haulage
industry and also examines the rationale and implications of
liberalizing the industry within a short span of time.

*
Malaysian Centre for Transport Studies, Universiti Teknologi MARA,
40450 Shah Alam, Selangor Darul Ehsan, Malaysia; e-mail: [email protected];
Fax: 603 – 55442344.

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INTRODUCTION

The advent of containerization has led to an efficient way of

freight transport across the world. The safety, versatility and ease of
handling features of container technology, as well as its suitability for
multi-modal transportation have helped in the rapid and wide penetration
of the technology in the freight industry. Encouraged by its efficiency
and cost-effectiveness, the development of containerization in Malaysia
has closely followed its advancement in the global shipping industry.
However, the burgeoning demand for freight transport owing to the
booming growth of the country’s manufacturing and industrial sectors,
has also significantly contributed to the fast growth of containerization
in Malaysia.

The increase in volumes of international trade using

containerization led to the rapid growth of container traffic at Malaysian
ports throughout the 1980s and 1990s, which in turn resulted in
congestion at ports and delays in delivery of containers to their
destinations. The problem reached a level at which manufacturers and
exporters had to incur excessive costs for storage and delays at the
ports. Faced with this situation, the Government of Malaysia developed
several policies aimed at increasing the efficiency of the container
haulage industry in order to remain competitive in the global market.

Operasi Cekap, a concerted effort by the Federation of Malaysian

Manufacturer (FMM), Port Authorities and the Ministry of Transport
(MOT), was undertaken to find a solution to the problems of delay in
delivery and congestion at ports that peak further during the festive
periods. Several factors that contributed to the situation were identified.
One of the main factors identified was that the number of container
haulage operators was insufficient. In 1991, there were only four
operators, which prompted the Government to consider policies to
liberalize the haulage industry in the country. Chief among these policies
was to allow multiple operators in this previously controlled market. It
may be mentioned here that the industry, which began with a single
operator in 1971, had 55 operators by 2001 thanks to the liberalization
policy of the government.

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The Government considered the liberalization of the haulage

industry as a necessary move since the number of container movements
at national ports had increased dramatically over the years. Furthermore,
the Government was committed to attracting more main line shipping
operators (MLOs) to Malaysian ports. The implication of this policy
was that the number of containers arriving could reach 5-6 million boxes
by 2004.

It was expected that the emergence of new hauliers would

significantly increase the efficiency and capacity of the industry. The
new hauliers would be providing services that used to be provided by
the five main container haulage operators in the past. The resulting
competition from a large number of hauliers in the market was expected
to bring about service rationalization, reduction in delays and possibly
rate adjustment, which could enhance the efficiency of the industry and
thereby benefit the container users as well as encourage greater
containerization in the future.

The liberalization of the haulage industry received overwhelming

support from many sectors of the economy, especially from the
manufacturing and the haulage industry itself. However, the existing
haulage operators expressed their deep concern and were sceptical about
the expected benefits of liberalization. While the manufacturing sector
viewed the liberalization move as a vital step towards increasing the
level of service of the haulage industry, the existing haulage operators
felt that this move would create instability in the industry.

With this background in mind, the objective of the paper is to

examine the rationale of the Government’s move in allowing a large
number of hauliers within a short period of time and its effect on the
industry. The paper also discusses the effects of other steps that have
been undertaken to liberalize the industry. Finally, some
recommendations have been made based on the experience gained so
far and conclusions are drawn.

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I. BACKGROUND OF THE CONTAINER HAULAGE

INDUSTRY IN MALAYSIA

In Malaysia, containerization made its debut in 1971. It was the

same year when the Government launched its second Malaysia Plan
(2MP). In 2MP, the Government proposed the formation of a national
haulage company to meet the inland transport requirements of the
country. Subsequently, Kontena Nasional Berhad was established in
August of the same year. Four months later, in December 1971, the
first container vessel, M.V. Benavon on its maiden voyage called at North
Terminal, Port Klang.

The rapid economic development experienced by Malaysia

throughout the 1980s and early 1990s, especially the huge expansion of
its industrial and manufacturing sector, led to massive demand for
container haulage services. To meet this growth of demand and in
response to increasing pressure for better services, four more operators
were introduced between 1981 and 1991 (see table 1). These five
operators carved up the container road haulage industry until 1997. They
formed the Container Hauliers Association of Malaysia (CHAM). As of
June 1999, CHAM represented the five operators and had a combined
fleet of 2,131 prime movers and 10,701 trailers (see table 2).

Table 1. New container haulage operators (1981-1991)

No. Operators Year

1. Shapadu Kontena (now Diperdana Kontena) 1981
2. Konsortium Perkapalan (now Konsortium Logistik Berhad) 1983
3. MISC Haulage Sdn Bhd 1991
4. Multimodal Freight Sdn Bhd 1991
Source: Commercial Vehicle Licensing Board.

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Table 2. Container haulage operators and vehicles licensed,

June 1999
Number of Number of
Balance
licences vehicles
unused
No. Company approved licensed
Prime Prime Prime
Trailer Trailer Trailer
mover mover mover
1. Kontena Nasional Sdn Bhd 822 3 307 771 3 035 51 272
2. Di Perdana Corporation Berhad 350 1 626 325 1 417 25 261
3. Konsortium Perkapalan Berhad 464 2 627 422 2 336 42 291
4. MISC Haulage Services Sdn Bhd 400 2 800 400 2 607 0 193
5. Multimodal Freight Sdn Bhd 275 1 664 213 1 306 62 358
Total 2 311 12 024 2 131 10 701 180 1 375

Source: Commercial Vehicle Licensing Board.

In 1997, the Government decided that it was necessary to

increase the number of operators in the industry. The move was seen as
an early attempt by the Government to increase efficiency in the industry
following numerous complaints that it had received concerning the
inefficiency of the industry and delays in providing services.
Consequently, the Government approved seven new operators (see
table 3). However, these new operators were allowed to haul containers
only within a range of a 30-kilometre radius of the ports. This
geographical restriction of operation was, however, lifted in 2000.

Table 3. New container haulage operators

(1997)

No. Operators
1. Gerak Intensif Sdn Bhd
2. Taipan Connection Sdn Bhd
3. Sparkomatic Assemblers Sdn Bhd
4. Veteran Timur Sdn Bhd
5. Tripee Sdn Bhd
6. Siang Cemerlang Sdn Bhd
7. Halus Maju Sdn Bhd
Source: Commercial Vehicle Licensing Board.

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With these 7 new operators, the total number of players in the

haulage industry was raised to 12. However, even after the introduction
of the new operators and subsequent lifting of initial restriction on their
area of operational coverage, the situation at the ports did not improve
according to expectations. Delays in deliveries were still common,
particularly during the festive seasons, and this modest increase in the
number of operators also did not help much to alleviate the congestion
problem at the ports.

By the middle of 1997, the Malaysian and other economies in

the ASEAN region were badly hit by the Asian financial and economic
crisis. National economic growth came down to far below its previously
expected level of performance. As a consequence, the container haulage
industry, which depended on the volume of production and domestic
and international trading activities, was badly affected. Owing to the
sudden fall in demand, the industry suffered from excessive capacity for
some period after the crisis.

The unexpected downturn of the economy that followed the crisis

however, did not distract the Government from its commitment to the
liberalization of the industry. It continued to pursue its liberalization
policies. The main reason for this was that the volume of containers
arriving at the ports again started to increase with the gradual recovery
of the economy.

The policy of issuance of permits to more operators was

continued even though there was a view in the industry in support of
stopping the issuance of new permits. Gradually more operators were
permitted. As a result, 55 container haulage operators now operate in
the country, which has resulted in a smaller share of the market for each
operator (see table 4).

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Table 4. Total number of container haulage operators

in Malaysia, 2001

No. Operators No. Operators

1. Kontena Nasional Berhad 29. PMSAA Multimodal Sdn Bhd
2. Di Perdana Corporation Berhad 30. IPLO Logistics Services Sdn Bhd
3. Konsortium Logistik Berhad 31. Benua Haulage Sdn Bhd
4. MISC Haulage Sdn Bhd 32. Insure-Trade Sdn Bhd
5. Multimodal Freight Sdn Bhd 33. Zetavest Sdn Bhd
6. Century Logistics Sdn Bhd 34. Nilai Inland Port Sdn Bhd
7. Integrated Haulage Sdn Bhd 35. Northport Container Terminal Sdn Bhd
8. Star Logistik Sdn Bhd 36. Prompt Dynamics Sdn Bhd
9. Timur Permai Haulage Sdn Bhd 37. Auto Wealth Plus Sdn Bhd
10. Asas Kontena Sdn Bhd 38. Triumph Alliance Sdn Bhd
11. Perak Freight Services Sdn Bhd 39. Yinson Haulage Sdn Bhd
12. M. Zain Logistics Sdn Bhd 40. Dayang Mewah Sdn Bhd
13. Pelangi Forwarding Sdn Bhd 41. Peladang Angkut Sdn Bhd
14. Johan Laju Transport Sdn Bhd 42. ZLA Transport and Services Sdn Bhd
15. Airocenic Express Sdn Bhd 43. Planetwide Express Sdn Bhd
16. Pengangkutan Toh Eng Huat Sdn Bhd 44. Teguh Cemerlang Sdn Bhd
17. Utas Lagenda Sdn Bhd 45. Ibrahim Hashim Transport Sdn Bhd
18. H.R.H Logistics Sdn Bhd 46. Pelabuhan Tanjung Pelepas Sdn Bhd
19. JP Logistics Sdn Bhd 47. Sparkomatic Assemblers Sdn Bhd
20. Jangkauan Galaksi Sdn Bhd 48. Taipan Connection Sdn Bhd
21. Second Port Logistics Sdn Bhd 49. Pekembar Industries (M) Sdn Bhd
22. Gugusan Peremba Sdn Bhd 50. Veteran Timur Sdn Bhd
23. LTS Logistics Sdn Bhd 51. Gerak Intensif Sdn Bhd
24. Tanjung Express (M) Sdn Bhd 52. Siang Cemerlang Sdn Bhd
25. Transocean Haulage Services Sdn Bhd 53. Halus Maju Sdn Bhd
26. Kasawari Angkut Sdn Bhd 54. Agenda Wira Sdn Bhd
27. Pintaran Timur (M) Sdn Bhd 55. Koperasi Polis Di Raja Malaysia Berhad
28. Persila Sdn Bhd
Source: Commercial Vehicle Licensing Board.

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II. JUSTIFICATION FOR LIBERALIZATION OF THE

CONTAINER HAULAGE INDUSTRY

This section provides a summary of the reasons and justifications

considered by the Government for the liberalization of the container
haulage industry in Malaysia.

A. Increasing efficiency of the container haulage industry

Before the liberalization moves, the shipping sector all over the
world considered the ports in Malaysia as inefficient and unreliable.
One of the factors that contributed to this bad reputation was the
congestion level at ports. A key contributor to this situation was the
insufficiency of container hauliers in the country. The situation was
much worse during peak periods and festival seasons. It may be
mentioned here that the container hauliers are one of the key players in
the logistics chain, which include shipping agents; freight forwarders;
warehouses, depots and ports operators; and shipping lines. However,
because of its key role in the chain, inefficiency of the haulage industry
leads to inevitable inefficiency of the whole chain which in turn affects
competitiveness of the economy.

The Government recognized the importance of smooth logistics

operation in this country. In order to ensure efficient logistics operations,
it decided to allow greater numbers of operators in the container haulage
industry, which used to be controlled by the five CHAM members. It
was expected that this move would induce greater competition between
the operators resulting in higher efficiency of the haulage industry and
the logistics chain as a whole as well as encourage innovations in
providing new and more efficient services.

B. Delays in haulage

The manufacturers and freight forwarders are among the main

parties who have long urged the government for the liberalization of the
container haulage industry. These two groups are represented at the
ports by the Federation of Malaysian Manufacturers (FMM) and the
Association of Freight Forwarding Agents, respectively. The main issue
that they brought to the notice of the government was the delays in

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delivery of containers, which increased their total transportation and

inventory costs and subsequently the financial losses that they had to
inccur due to the increased cost of transactions.

The delays in land-side operations were attributed primarily to

the inefficiency of the hauliers. These delays affected the delivery to
and removal of containers from the consignee’s premise. In a study
conducted by FMM in September 1998 it was found that 52 per cent of
respondents were of the opinion that delays by hauliers were the main
factor causing the delay in their operation. Delays also imposed
additional storage cost on them as the containers were removed later
than the period allowed by the port operators.

Similar views were also expressed by the respondents in a survey

conducted by the National Productivity Centre (NPC) in 1999. Fifty
per cent of the respondents to this survey considered the impacts of
delay in the delivery of containers on their businesses as severe. It was
also found that delays in dispatching containers from exporters’ premises
to the ports created a chain of adverse effects to their businesses. About
41 per cent respondents claimed that delays caused them to miss shipping
schedules of MLOs calling at local ports. Subsequently, it resulted in
the loss of customers for about 16 per cent of respondents and
cancellation of orders to another 14 per cent of respondents.

Such occurrences resulted in the decline of Malaysian export

competitiveness, which otherwise could have been avoided if the
efficiency of container haulage operation had been improved. The
above-mentioned FMM survey found that 61 per cent of the respondents
supported the view of increasing the number of hauliers.

It was reported that in order to enhance the efficiency of the

industry, the Government was initially in favour of pursuing a policy
for consolidation of the existing five hauliers and allowing additional
smaller operators within a defined geographical region around the ports.
However, the Government decided afterwards to allow a larger number
of hauliers and lifted the initial restrictions on operations of small
operators, which were permitted in 1997.

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C. Commitment to globalization and ASEAN

Free Trade Area (AFTA)

With the ongoing globalization of the world economy, the

developed countries have urged the freeing and liberalization of domestic
markets to allow a level playing field for all players. Pursuant to this
call, one of the issues that was brought to the notice of the World Trade
Organization (WTO) was the high degree of protection that many
Governments in developing countries were providing to their transport
sectors. Malaysia could not afford to distance herself from international
business trends and it was also hard for her to get away from such
external pressure.

With the implementation of AFTA by the year 2005, the national

boundaries, from the trading perspective, will begin to fade away in the
ASEAN region. Initiatives to secure the role of Malaysia as the regional
distribution and consolidation centre requires her to develop efficient
logistics operation in the country. This requires not just good physical
facilities, but also comprehensive logistics-chain providers.

By liberalizing the container haulage industry, Malaysia would

be in a favourable strategic position to meet the demand for the expected
container movements in the region. The Government expects that the
main container hauliers in CHAM would be able to provide a good and
reliable service beyond the national borders and also could gradually
venture into container haulage operations in Singapore, Thailand and
other ASEAN countries. With the shift of the main hauliers to the
regional market, the new hauliers then could play a bigger role in
meeting the needs of domestic logistics operation left out by the bigger
players.

The Government considered that the time left before the

implementation AFTA could be used as a window of opportunity by the
container haulage operators. During the intervening period, operational
efficiency can be increased and planning can be made ahead of the
expected changes in an increasingly complex and challenging regional
market.

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D. Promotion of greater participation by the private sector

The five main container hauliers associated with CHAM are

private entities. However, the Government has a direct stake in all of
these five companies through holding of equity or through their status
as sudsidiaries to a government owned company. For example,
Permodalan Nasional Berhad, the investment wing of the Government,
owns Kontena Nasional Berhad. MISC Haulage Sdn Bhd is indirectly
owned by Petroliam Nasional Berhad (Petronas), the mother company
for Malaysian International Shipping Corporation (MISC) and
Multimodal Freight Sdn Bhd is a subsidiary of Keretapi Tanah Melayu
Berhad (KTMB), which is a government-owned company.

However, unlike the big five companies in CHAM the

Government does not have a direct stake in the new breed of container
hauliers. They come from the private sector and most of them are
related to and have a strong background in freight transport by land.
With greater participation of the private sector in the industry, the
Government hoped that it would be a in the right direction step towards
reducing dependency of the industry on government whereby the private
sector could develop and grow by itself.

E. Growth of container traffic

There has been a phenomenal increase in the number of ship

arrivals and container traffic at the ports in Malaysia throughout the
1990s with the exception in 1998, which was the year immediately after
the financial crisis of 1997. For example, as can be seen from tables 5
and 6, the total number of ships calling at ports in the Peninsular
Malaysia, as well as the container throughputs in 2000, recorded an
increase of 10 per cent and 23 per cent, respectively over their
corresponding figures in 1999.

Figure 1 shows the total number of TEUs (twenty feet unit)

handled at Port Klang, Penang and Johor and the total number of prime
movers and trailers available in the period 1995-2000. It shows that
despite the total number of containers arriving at these ports having
increased about 2.5 times in this 5-year period, the numbers of prime
movers and trailers available for their inland transport have remained
almost unchanged.

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Source: Transport Statistics 2000, Ministry of Transport Malaysia.

Commercial Vehicle Licensing Board, Malaysia.

Figure 1. Total TEU throughput, and prime movers and trailers

available, 1995-2000

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The number of containers arriving at all ports in 2000 was

4,602,036 TEUs. Based on the movement efficiency ratio of 1 prime
mover: 7 trailers: 182 movements a year, as provided by Commercial
Vehicle Licensing Board (CVLB), the estimated requirements of prime
movers and trailers for the transport of these containers were 3,612 and
25,286, respectively. When these figures are compared with the figures
of actually available prime movers and trailers with the five major
hauliers (see table 2), it is clear that the prime movers and trailers
available to these companies were far short (only about 58 per cent
prime movers and 42 per cent trailers) of their estimated requirements.
There would been an insufficiency in supply of services if the capacity
of the haulage industry had remained the same as that of the total
capacity of the five major hauliers in 1999.

III. CONTAINER HAULAGE OPERATION IN MALAYSIA

Road, rail and coastal shipping services are used for container
haulage operation in Malaysia. This section provides a brief description
of haulage operation by these three modes of transport.

A. Container haulage by road

The container haulage operation by road is a dedicated form of

transport, which is designed to haul only containers. It consists of a
prime mover or a traction unit and a trailer unit upon which a container
is loaded. The traction unit can be attached to or detached from the
trailer unit. The trailer unit is designed to take two 20-feet containers
or a single 40-foot container.

In Malaysia, a drop-trailer method of operation is generally used

in the industry, whereby a container that needs to be stuffed or unstuffed
is left mounted on its trailer at its origin or final destination. It is often
the case that a container is left at a site for days together with its trailer
and is used as a buffer warehouse by manufacturers. Apart from that,
trailers are also used at ports for pre-mounting of boxes and then they
are left for customs inspection and clearance, which also takes days to
complete. (MDS Trans Asia and Economic Planning Unit, PM’s
Department, 1995).

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The availability of trailers for container haulage is greatly

affected by their long turnaround time owing to the drop-trailer method
of operation. Idle trailers left at the premises of shippers or at ports
affect the movement of containers, as they cannot be used for the actual
haulage operation. A prime mover, however, can be detached from the
trailer and can be used for another operation.

The turnaround time of trailers is also affected by length of

haulage. The industrial and manufacturing firms, which represent a
large part of container haulage customers, are located over a widely
spread geographical area in Malaysia. As such, deliveries and picking
up of containers can be a time consuming process, which in turn directly
affects the turnaround time and availability of both prime movers and
trailers. It may be mentioned here that the industrial ratio for container
haulage in Malaysia (prime mover to trailer) is typically
1:6 or 1:7, which is considered to be quite high compared with the ratio
of many other regional countries.

Malaysia practices a merchant haulier system whereby the

importers or exporters are responsible to arrange for the delivery and
picking-up of their containers. This is done either by themselves or
they use the services of independent freight forwarders.

Bhupinder Singh (2001) states that before liberalization of the

Malaysian haulage industry, it was considered to be an oligopolistic
cartel, which consisted of five leading haulage firms, namely Kontena
Nasional Bhd, Konsortium Logistik Berhad, Diperdana Corporation
Berhad, MISC Haulage Services Sdn Bhd and Multimodal Freight
Transportation Sdn Bhd. An oligopolistic industry is typically
characterised by high barriers to entry that could be due to substantial
capital requirements, need for the technical know-how, control of rights
to entry and so forth. These characteristics applied to the haulage
industry in Malaysia. Apart from the requirement to obtain an operating
license through a lengthy process and government control of the number
of licence, entry into the container haulage business required large
investments in equipment, setting up of an establishment, and
sophisticated management and technical know-how to run the business.

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B. Container haulage by rail: KTMB container and

landbridge services

The container haulage operation by rail is carried out by Keretapi

Tanah Melayu Berhad (KTMB), the Malaysian State Railway Authority.
KTMB’s Freight Service Division is the sole provider of container
haulage operation in the country. Apart from container movement from
Port Klang, Penang and until recently the Port of Tanjung Pelepas, its
rail connection also links to Inland Clearance Depots (ICDs) such as
Ipoh Cargo Terminal, Sg Way ICD, Nilai Inland Port and Segamat Inland
Port.

KTMB also operates a landbridge service in cooperation with

the State Railway of Thailand (SRT) providing cross border movement
of containers between Malaysia and Thailand. This landbridge service
links the Malaysian ports having railheads with the Lat Krabang ICD in
Thailand. The service is currently run by four operators, namely T.S.
Transrail (M) Sdn Bhd, Freight Management (M) Sdn Bhd, TS Allied
Solution Sdn Bhd and PTP Landbridge Services Sdn Bhd.

Container haulage by rail was developed as one of the means to

reduce congestion and improve efficiency of the ports. In 2000, KTMB
carried a total of 255,312 TEUs, which represented an increase of almost
200 per cent over the previous year. In order to provide a door-to-door
service and improve the quality of service, KTMB has introduced the
concept of multi-modal transport in its container haulage operation. It
has formed a subsidiary road haulage company called Multimodal
Freight Sdn Bhd to facilitate its multi-modal haulage operation.

In order to enhance the capacity of container haulage by rail, the

Government has allocated RM 4.5 billion in the Eighth Malaysia Plan
(8MP) for double tracking of the main railway line that will eventually
connect Padang Besar at the Malaysia-Thai border with Johor Bahru at
the Malaysia-Singapore border. Apart from this, the Government is also
contemplating a railway link connecting the city of Kunming in China
with Singapore via Malaysia, which would further boost the role of
railway in container haulage operation.

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C. Container haulage by feeder vessels

Feeder vessels and coastal vessels also play an important role in

the Malaysian container haulage industry. These vessels are used for
the trans-shipment of containers from smaller ports to main ports in
Peninsular Malaysia and from the main ports to other ports in the
ASEAN region.

The present feeder services that operate from various ports in

Malaysia, however, are mostly carried out by Singapore-based
companies. According to the statistics obtained from the Maritime
Department, Ministry of Transport, a total of 5,220 container feeder
vessels and 2,275 coastal vessels called at different ports in Malaysia in
2000.

IV. REGULATORY CONTROL OF THE CONTAINER

HAULAGE INDUSTRY

Generally, transport operations in Malaysia are subject to a high

degree of regulatory control by the Government. This is particularly so
in the case of the container haulage industry, which is regulated by two
acts, namely:

(a) Road Transport (RT) Act, 1987;

(b) Commercial Vehicle Licensing Board (CVLB) Act, 1987.
These two Acts are enforced by the Ministry of Transport (MOT)
and the Ministry of Entrepreneur Development (MED). All matters
concerning the technical and safety aspects of the road transport industry
are regulated under the RT Act of 1987. On the other hand, the CVLB
Act of 1987 is concerned with licensing of operators and their
management. It may be mentioned that an operator who wants to enter
into the haulage industry must first apply for a licence from the CVLB.

A. Licensing of commercial vehicles

The CVLB Act of 1987 has empowered the Commercial Vehicle

Licensing Board in matters pertaining to licensing of commercial road
vehicles and their operation. The regulatory authority exercised by the

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Board has important implications in the context of liberalization of the

haulage industry.

Without a licence or ‘permit’ as it is commonly referred to in

Malaysia, an operator cannot operate even if a vehicle is to be used for
carrying his own goods. There are two types of permits. The first type
is a ‘C’ Licence, which is issued to an operator who is allowed to carry
his own goods. The second type is an ‘A’ Licence, which applies to
commercial hauliers. This licence is issued to operators who are allowed
to carry goods by using road vehicles for hire or reward.

Both categories of licence are issued to an individual or company

and cannot be transferred or assigned to another party without prior
notice to the Board. Section 19 (1) of the CVLB Act provides authority
to the Board concerning imposition of a wide range of licensing
conditions on the operator and his business operations. The Board may
at its discretion impose, add, cancel or vary at any time, any of the
following conditions:

(a) The specific area, times, and places between which the
vehicle shall operate;

(b) The class or description of goods that can be carried;

(c) Individuals/firms for whom goods can be carried;

(d) Imposition of charges and demurrage as specified;

(e) The maximum laden weight that shall not be exceeded;

(f) The information, accounts, documents and records that are

to be kept in order and produced on demand.

In order to ensure that new container haulage operators were

qualified to get permits to start haulage operation, the Board set several
additional qualification requirements. These requirements were
considered necessary in order to ensure that the prime objective of
liberalization to increase the efficiency of the industry could be achieved
and that the new operators were able to provide services that were of
the industry standard.

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The additional requirements that must be fulfilled by the

operators include:

(a) The management and operation of business by the operator

himself and prohibition from leasing or renting out the permits;

(b) Running of a 24-hours office by operator;

(c) Having a depot and a vehicle storage centre that have been
approved by the local authority;

(d) The obligation to operate at all times and that the haulage
operation cannot be stopped during festive seasons;

(e) Employment of trained and licensed drivers;

(f) Equipping with a reliable communication system;

(g) Capacity of vehicles used must be 20 tonne trailers;

(h) The information, accounts, documents and records that are

to be kept in order and produced on demand.

Before March 2001 an operator was allowed to operate only in a

defined area under the provisions of the CVLB Act. The Board however
abolished this provision upon numerous requests from the container
haulage operators. However, as mentioned below, a new system of four
operational zones has been introduced. An operator is not restricted by
geographical operational boundaries within a zone.

The setting of tariff rates is also under the administrative control

of the Board. The Board set a minimum charge of RM 174.00 for the
first 32 kilometres. The rate however has remained the same over the
past 30 years despite calls for its increase by the container haulage
operators. According to the operators, operating costs in the industry
have increased considerably over the past 30 years. As a result, the
profit margin has greatly declined. Apart from that, the cost of
purchasing new prime movers and trailers has increased significantly.
To provide some relief to the operators, the Government has announced
tax incentives in the budget of 2000 for the purchase of new prime

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movers. However, this incentive applies only for the purchase of brand
new prime movers but not for reconditioned ones.

As mentioned earlier, the licence or ‘permit’, acts as the main

barrier to a new operator who wants to enter the industry. Without the
‘permit’, an individual or organization interested in the haulage industry
cannot purchase, register and operate a container truck, even for moving
his own goods.

B. Other means of regulatory control

Besides licensing, there are several other control measures

provided by the CVLB Act 1987 and RTA 1987 which are also used to
control the road haulage industry. For example, the number of operators
is controlled by the Act. Formerly, only 5 container haulage companies
were allowed and the number has been allowed to increase to 55
operators in the recent years.

As the Board controls the number of licences issued, it also

determines the number of vehicles in the market, which the operators
could operate. For example, an operator must maintain a ratio of one
prime mover for every seven trailers in his fleet. This ratio represents
the container movement efficiency ratio that was set by the Board as a
guideline for the industry.

Regulatory control is also applied to the size and capacity of the

haulage vehicles. The maximum vehicle dimensions and mandatory
technical requirements are specified in the Acts.

For the purpose of fixing tariff rates for container haulage

operation, a system of four zones has been introduced as shown in
table 7. This zoning system, however, does not restict the movement of
hauliers. It merely acts as a guidance to fix haulage rates. The rates are
calculated based on the distance travelled from the haulage base (ports)
to the premises of the customer. It accounts that for the first
32 kilometres from the haulage base, a minimum of RM 174.00 should
be applied. The rates also differ from every haulage base to the final
destination. For example, the rates from Penang Port and Johor Port to
Kuala Lumpur differ according to the distance.

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Table 7. Zone system

No. Zone Haulage base

1 Northern Penang Port and Ipoh Cargo Terminal
2 Central Port Klang
3 Southern Johor Port – Pasir Gudang and Tanjung Pelepas Port
4 Eastern Kuantan Port

V. IMPORTANT ISSUES

The liberalization of the container haulage industry in Malaysia

has achieved its main objective of increasing the efficiency in the
industry in general. The manufacturers and customers of the container
haulage industry have been benefited in controlling their total transport
costs. They can clear their containers from the ports in a much shorter
time period of three to five days and thus avoid storage charges at the
ports.

However, it has also led to some unintended results. The move

to allow 50 new operators within a period of 5 years has created an
excess supply of services in the midst of a shrinking market. This has
created some instability in the market. In view of this and other
problems faced by the haulage industry, the following two major issues
have been identified which require attention of the concerned authorities.
Given the complexity of the issues and their possible far-reaching effects
on the road haulage industry, it is recommended that further studies
need to be undertaken to examine their effects both in the short- and
long-term as well as to find their appropriate solutions.

A. Excess capacity and efficient utilization of resources

It is understood that applications of 10 more new operators are

being processed by CVLB who are expected to join the industry by the
end of the year 2002 or early 2003. This would raise the total number
of operators from the current 55 to 65. As of now, there is no indication
as to whether the Government would stop issuing licenses to any more
new operators.

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While numerical proliferation of operators in the past has

certainly helped to improve the overall efficiency of the industry to
some extent, any further improvement would greatly depend on
increasing the operational and organizational efficiency of the operators
and not so much on their sheer numbers. Given the existing excess
capacity, which may further be increased through institutional changes
and improvement of logistics, greater considerations should now be made
on the improvement of quality of services through better utilization of
existing resources and changes in management and operational practices
in the industry. Higher efficiency in resource utilization would reduce
the necessity of new investments. This shift of focus would help to
maintain stability in the container haulage industry and prepare it better
to take the new challenges from the external environment, as well as
capture new business opportunities that would be created through
opening up of the regional market.

There are many different ways to improve the quality of services

and increase the efficiency of resource utilization. For example,
“Shippers’ Charters” and the ISO 9000 have specific recommendations
for these purposes. As suggested above, these recommendations need
to be investigated in the Malaysian context through an in-depth study
with wide participation of all parties involved with the industry. The
results of such a study would help the Government and the industry to
scrutinize the real ability of the operators and identify the root causes of
the problem and their solutions through specific actions by each of the
parties involved.

The study may consider both regulatory and non-regulatory

measures. While the regulatory measures on qualitative aspects of
service and operations could be incorporated as conditions of licensing,
the non-regulatory measures, depending on their nature, could be
implemented by the Government or the industry. It needs to be
emphasized here that further improvement in efficiency of the industry
through better utilization of resources and improvement of service quality
would be much needed to ensure the viability of the industry in the face
of forthcoming challenges after the implementation of the ASEAN Free
Trade Area (AFTA).

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B. Reviewing the container haulage rates and tariffs

There is a need for a review of the current tariff rates in the

container haulage industry. The rates have remained fixed for 30 years.
Over the years, the costs of container haulage have increased
considerably. As a result, the profit margin of the operators has been
greatly reduced. To look into the problem, the in-depth study suggested
in section V.A may also consider how much reduction in costs could be
possible through efficiency gains in the industry. A separate study may
also be considered to examine the current cost structure of the industry
and review the existing tariff rates. However, interests of all
stakeholders, not just the haulage operators, should be taken into account
in any review of the tariff rates.

CONCLUSION

The liberalization of an industry may have both positive and

negative effects. However, their relative magnitudes depend on how the
liberalization measures were implemented. A detailed study is required
to know all the pros and cons of the intended liberalization measures
before the moves should be taken. The experiences of liberalization of
the road container haulage industry in Malaysia is a good example that
shows the necessity of such a prior study to reap the full benefits of
liberalization.

With the increase in capacity of the haulage industry, the overall

efficiency of the logistics chain in Malaysia has greatly improved.
Malaysian ports have experienced greater efficiency by reducing the
congestion level at the ports tremendoulsy. This has allowed greater
movement of containers at the ports. Haulage customers are now
enjoying better services owing mainly to reduction of delays in delivery,
avoidance of storage and detention charges at the ports and better terms
of service offered by the hauliers.

However, this does not mean that the move to liberalize the
industry has been a complete success. The rapid increase in the number
of operators has created excess capacity, which has given rise to an
unhealthy trend in the industry and the financial sustainability of the
operators is at risk. With the implementation of AFTA, the industry

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will be exposed to a greater level of uncertainty in the face of

competition from foreign operators. In this condition, leaving the matter
in the hands of the market alone may not result in a desired situation
and could give rise to more complex problems in the future.

The industry at the moment faces an uphill task of reorganizing

itself and shaping up for the future challenges. The prospect of the
industry however looks bright if all parties are willing to provide
cooperation and join hands to face future challenges. For now, the
anticipated economic recovery has shed some light for the future that
looked dim two years ago.

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Bhupinder Singh, 2001. “In for the Long Haul?”, Maritime & Logistics,
Malaysian Business, April 16-30, pp. 48-51.

Ports World Sdn Bhd, 2001. “Overhauling Haulage”, Maritime &

Logistics, Malaysian Business, September 16-30, pp. 48-66.

Ports World Sdn Bhd, 2001. “On The Right Track”, Maritime &
Logistics, Malaysian Business, November 1-15, pp. 58-60.

Statistics Department, Ministry of Transport, 2002. Transport Statistical

Yearbook 2000, (Kuala Lumpur).

MDS Trans Asia and Economic Planning Unit, Prime Minister’s

Department, 1995. A Comparative Study of Malaysian and Singaporean
Ports (Putrajaya).

Economic Planning Unit, Prime Minister’s Deparment., 2001. Eighth

Malaysia Plan (2001-2005) (Kuala Lumpur, Percetakan Nasional
Malaysia Berhad).

Federation of Malaysian Manufacturers, 1998. Report on FMM Survey

on Transportation Logistics Chain (Kuala Lumpur).

National Productivity Centre, 1999. Report on A Survey of Container

Transportation Chain in Malaysia (Kuala Lumpur).

Container Haulier Association Malaysia, Annual Report 2000 (Kuala

Lumpur).

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